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tv   Options Action  CNBC  September 27, 2014 6:00am-6:31am EDT

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people first, then money, then things. now you stay safe. now you stay safe. bye-bye. this is ""options action" action," tonight the gross out trade. no, not like that. we're talking about the bonds shocking departure. what does it mean for the markets? plus, how can this crazy stunt make you a crazy amount of money? because gopro shares are on fire. see how high some traders see it going next week. you won't believe who is kicking amazon's nook. >> i'm coming for you. >> it's not tyson, it could
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spell trouble for the online giant. the action begins right now. live from the nasdaq market site. i'm melissa lee. tonight's question, what happened to all the naysayers? what have an extremely high dollar and high yield bonds. the mood in the street feels a lot calmer right now, so what is really driving the market? michael, we want to start with you. we saw the buyers mof in. what do you make of the action? >> for one thing, we got economic data, housing data earlier this week was certainly positive. ultimately, i think equity markets will be fueled now by central banks in other parts of the world. some of these stocks are looking cheap. >> that will propel some of i. i think everybody yesterday got really panicked. we were 2% from the highs. it was more volatility than we
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have seen. it's not ra lot of volatility all things considered. the dow moving around 150 points. there is not as much volatility as you think. >> it felt bad. though. >> part of the reason is it's the first time it's happened in a while in who months. one thing to keep in mind about the "options action" is this was priced in once every month. not once every two months. i they part of it was we're not used to it. not that the market didn't say it could happen. a lot of things that ended up happening. 1.5% moved out on the s&p 500. we see it once every two months. that was more a shock value for us. there were a lot of headlines out there that made people nervous with lighter volume. >> next week we're going to get some inflation data, we will get the jobs report. which i think what you'd love to see is a mediocre jobs report
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with no inflation which essentially means it's game on, basically, to keep the liquidity there and supports all financial prices. >> that what we saw what people are expecting. >> i think it's really important to keep in mind the s&p 500. >> that itself the place investors want to be right now. these earnings are growing. so we are getting better here. the s&p 500 continues to grow. it does not mean we can't go down every once in a while. >> carter in the charts, what do you see? make sense of this for us? >> reporter: there is obviously moving parts everywhere but conviction is waning in the markets. ultimately, it should come out in the s&p doing this thing t. white lean is the s&p, obviously, that's the market. but look at some of these other things. this is the msci, all of europe, africa, the far east. there is a thousand stocks, it is now basically unchanged on
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the year. this is high yield. same thing, this is all s&p 500 retail. this is the global auto index. basicallily, almost everything is starting to stall, the s&p is being influenced by a few names. in many ways, this foreshadows breaks in the market. sense the bull market began in '2kr50u7b9 versus occurred at the same time the s&p has had a draw dawn. what i see are two things here. can you draw your stops this sort of way and call that head and shoulders. you can also call this a break in trend. but the reality is, all right, that we are deteriorating and ultimately, this is what the s&p should do. now, here's an important thing. every high is met with a high in the s & g. this last high was not a new
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high. the s&p made a high. here is the well defined uptrend again. there is no way to argue about begins this. the presumption is everything else is breaking that this, too, will break. we think it will succumb with everything else. here's the bull market since march of ', well defined channel. to about 178 on is spy. >> carter, thanks, for. you have a trade on the s.p.y. here? >> i think slong longer term, i think to carter's point that doesn'tshop stop the shorter moves down. to our earlier point so these "options action" while volatility may be on the lower side, we're not seeing the moves that volatility is pricing in. so i want to -- i'm a hig hesitant to go out there and say
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let's buy s&p 500 puts, you are not getting the moves you are paying for when you boy that option. i'd much rather look at a spread. this will take the lack of those moves you are paying for out of those strategies. the strategies i was looking at today, i was looking specifically at the spider and trading at 198. i looked at the 193 put. this was buying the november 193 put and selling the november 178 put. all in it cost you around $1.75. obviously, that 193 strike sput 2-and-a-half out of the money. that starts to kick in like days you had the other day. >> that out of the money put because investors are buying so many puts, it's relatively high. >> i think what i like is you are spending relatively little to get ens here.
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going out to november, if a strong dollar is going to pressure the multi-national names, which, of course, that's one of the basically things i things people are speculating will happen. this gives you time for that to be digested. i'm not bearish on the market. i think this is a cheap way without unwinding. >> are you with carter on that 10% decline forecast? is it simply insurance? >> i think it's simply insurance. to mike's point i like it so i can sleep at night. i would be surprised by the end of december we're down 10%. it want to be involved in that. the best way i think to be involved is to have some protection. >> let's go to our next trade here. call it the new extreme safety trade. 22% this week alone. this is upcoming for camera mounts. gopro action saw calls outnumber
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puts by almost two-to-one. many traders see big short-term gains here. >> that's really the amazing thing. here you have a stock up 20% this week. we were looking at weekly options that expire next friday and people were buying things like the 90s strike calls. so we are looking at people thinking next week i have another 15% upmove. i think the thing that's important to real i'd here is this has been so volatile almost anything is possible. this is not based on a historical performance. it's what this could mean in the future. ten times sales, it's a $10 billion company. here about half the nau of netflix here. if you take a look at the size of this company, it's pretty incredibly expensive. >> what's your trade, make? >> i think the simple way to play is to go out to january and buy the 82-and-a-half strike calls. watch your limits. as much as the stock moves
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around, use your limit orders wisely here. ask yourself this question. by next january, down this stock could be 20% higher or 20% lower? even if that's a coin toss, you are better off buying these calls. >> that's a good point. one of my things with gopro i would only use the options, to mike's point, if you look at the option, they're pricing at a much higher probability we will lower in january. it's actually suggested to be more down than up. >> that being said, these upside moves can be dramatic and they can be 100 plus. i want to participate on that. i don't like owning the stock. again, i think the "options action" are suggesting it can be lower. i want that embedded protection with the call. >> carter, is it difficult to do a technical analysis of a stock that has a very short trading-istory? >> that's right. pattern interpretation is studying patterns past behavior
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to suggest what might happen. but sheer all of the trading that's ever existed in gopro. note the authority of the 50 level. so the stock pops on its ipo. right? 50. 50. 50. very precise. then, of course, we have a brakeout. after two months of sideways, you get the initial pop. stall for two months. then a heavy volume breakout which is set up fairly orderly ascent. at this point you say stay on. there is nothing to doubt here. is it expensive? yes, there is nothing such as valuation. ride the momentum. it's real, it's intact. >> that momentum is fighting the shorts ear, this was one of those names a lot of people looked to and said we don't like the valuation. we think this isn't a necessarily long-term success story. this is actually a situation where one of the things that will benefit you to the upside potentially is the fact that so many people are questioning its valuation.
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those people can get squeezed. what happens? zbox higher. >> at&t said they can have a water proof under water camera coming up. >> absolutely. one of the things that concerns me, though, with gopro, again, i like the options here. people are talking about the valuation. you cannot short the stock to mike's point. so many people are trying to short it. >> that means you can have these possibly short squeezes. i think those "options action" to mike's trade here, you have to be die namic with it. it is not a set it and forget it. >> got a question, send us a tweet@"options action" action. there is only one way to go. "options action"actions.cnbc.com. some have called it an out of body experience. i don't know any of those people. i guess it's true. you want to check it out. hooers here's what's coming up
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next. it's war. some retailers are making an unlikely run at amazon. we'll tell you how to play the online giant notice. plus, what do derek jeter and whole foods have in common? >> i don't know. >> it's a shocking quince that could mean money in your pocket. we will sort of explain when o "opti when "options action" returns. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade.
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[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. >> what happens when a high
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flyer stops rising? amazon shares have gone nowhere in the last three months and are significantly lower author the year. chart master what is going on? >> it is not keeping up with retailers in general. there has been some big moves in sort of dead names of late. but let's take a look. so here you have, i mean, this is big stuff. two months, you know, 38%, family dollar 28. lands end, amazon ouch, down a bit. another panel, kohl's, ross stores, foot locker, huge moves, amazon not participateth. as you said on the year, amazon is down considerably. so look at this long-term five-year chart ever since the bull market began. green is leading yellow, leading white. amazon is beating retailers in inturn is beating s&p.
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year-to-date the reverse. white, s&p, beating retailers, in turn, is boating amazon. something is not right. we think it goes lower. take a look at the next two charts. there's the long-term chart and what you call this and it's all that it is is perfect equilibrium. after a great ascent. a stock starts to have a series of lower high, higher lows and you work into this papex of a wedge, a triangle. the bears either win or the bulls win. we're on the bear camp here. we think this breaks the downside. here's why. so here's our again series of lower highs. but what's important here is this gap on heavy volume and, then again, a gap on heavy volume. and then again, gap on heavy volume. distribution, distribution,
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distribution. we think ultimately it breaks this trend right here. that's the wedge. and we fall quite dramatically. we would not be long amazon. if you are looking for a short sale, it's a good one. >> it's interesting, amazon compared to a lot of other retailers. some said they would eventually trade like a wal-mart. that sort of the business they are in for commodity-like goods at razor thin margin. what has wal-mart stock done nothing as well? >> when you go back to 2000 when wal-mart was trading 60 times earnings, it went sideways for probably a decade. there is probably not anyone watching that doesn't believe amazon will have much, much higher revenues ten years from today. they haven't demonstrated they can make any real margins. all of this stock has been a strategic bet that beso's play on growth was the play here. there is why it so hard to short
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this thing when it reached high levels. you can't dwesht i distinguish when people will make those bets, until it breaks down. carter illustrated it for us. that was name in the past i thought, hey, maybe this is it. maybe it will break down and people will see the light. they're not making any money. now we can see not only has that happened, but it has been happening for a while. there doesn't seem to be a lot of confidence in the stock. >> i don't disagree. i would think the volatility would be more wal-mart-like. to me when i buy things on amazon and wal-mart and i don't have time to go to wal-mart. for me it's very much the same type of company. comparing it to an american eagle or a teen retailer. it is a mall, it's when you got up, you went out. i consider it more of a wal-mart type. >> request all that said, what's the trade? >> i will buy the january 3 puts, can you pay about $16 for those. the reason i'm doing that, i know in addition to buying this
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put i'm going to be buying a lot of things on amazon, i'm sure my driveway will be filling up with boxes when christmas comes around. >> button up. carter, how much downside do you see for amazon? >> some say 70%, that's a laugh test a. reasonable draw down from here after this kind of setup would be a break of this trend and here's the level that i would cite. so this top is the exact same level as this low, which is the exact same level as that low. there is really your line. that's about 10% from where we are now. >> 10% lower on amazon. coming up next, what does derek jeter and whole foods have in common? we'll explain when "options action" returns. ♪
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when the world moves, futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade.
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[b♪ll rings] time and sales data. split-second stats. ♪ its so close to the options floor,
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you'll bust your brain-box. all on thinkorswim, from td ameritrade. . >> cleanup in aisle two. a protective strategy prevented him from options.
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"options action" is how we trade like satisfyzy shoppers. that's what mike tried to do on his bearish bet on whole foods just going short. >> is that okay? >> not really, since any stock can technically rise forever. if mike goes short, he could be looking at intimate losses. so define his risk he got the january put for $2. a put allows to you sell a stock at a given time at a given price. in order to make money, mike needs whole food shares to fall below $35 or below $33 by january expiration, but spending $2 bucks against whole foods? is it organic? mike sold the august 35 put for 80 cents and created hissalen dar put spread. he made it easier to make money. here's how. between the $2 he intent on that
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longer data put and the shorter data put, pike cut his cost down to $1.20. to make money he needs whole foods to fall below 33.80 by january expiration. and it gets even better, since the shorter data put mike sold will lose data faster than the longer data put that he thought, mike can do something amazing, ton time into money. >> oh, yes, you did it! >> hold on, since mike stoold put, he needs whole food shares to stay above the $35 strike price at august expiration but fall below that strike price by january expiration. while whole food shares have risen since the time of the trade, that shorter data put expired worthless, meaning mike's trade is looking all right. now "options action's" biggest fan. >> i don't know if that makes sense. >> wants to know the exact same
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thing. what will mike do now? before we ask derek's burning question, let's play options versus options to see if it worked. the january put lost 30% of its value, mike offset his costs by selling the august put t. trade hasn't lost money yet. even though whole foods hasn't gone way he predicted. so, mike, what do you do now? >> you can look to sell options again against these. so you can look to sell the october's against the january's, keep the longer data position on. the reason that people liked to buy whole foods stock originally, they were making margins and egrowing. it looked like the starbucks of the grocery business. others can get in and the margins are getting compressed. even though have you top line growth, those margins are declining. >> what do the carts look like? >> they're all pretty bad, this whole foods and there is no indication that the selling
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pressure is over t. presumption stays away. be short. >> it's interesting, this basically got some action when general mills bought bunnys, there was thinking they could be in play or make acquisitions and grow. >> i don't think whole foods would have been one of those situation itself with mike's trade, he has there protection. he ended up financing it as we went into earnings. he was taking advantage of the fact the volatility was a little high saying you know what, it seems to have bottomed out. let me take that premium the market is pricing in. >> coming up next, a final call from the options pits. [bell rings] ♪ time and sales data. split-second stats. ♪ its so close to the options floor,
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you'll bust your brain-box. all on thinkorswim, from td ameritrade.
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[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. >> time for the final call. carter. >> keep your eyes on bonds, we think they're bad for equities. >> you have to trade spreads if you are thinking s&p 500.
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>> it looks like our time is expired. i'm melissa lee. thanks for watching. check out the website. also we are on "fast money" every day. we will see you back here 5:30 for more oa. meantime, mad money with jim cramer starts right now. .

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